The Corporate Scandal Sheet

With the avalanche of corporate accounting scandals that have rocked the markets recently, it's getting hard to keep track of them all--but our Corporate Scandal Sheet does the job. Here we'll follow accounting imbroglios only--avoiding insider-trading allegations like those plaguing ImClone, since chronicling every corporate transgression would be impractical--and our timeline starts with the Enron debacle.

Three Rigas family members and two other ex-executives have been arrested for fraud. The company is suing the entire Rigas family for $1 billion for breach of fiduciary duties, among other things.

Did not return repeated calls for comment.

AOL Time Warner

July 2002

As the ad market faltered and AOL's purchase of Time Warner loomed, AOL inflated sales by booking barter deals and ads it sold on behalf of others as revenue to keep its growth rate up and seal the deal. AOL also boosted sales via "round-trip" deals with advertisers and suppliers.

SEC; DOJ

Fears about the inquiry intensified when the DOJ ordered the company to preserve its documents. AOL said it may have overstated revenue by $49 million. New concerns are afoot that the company may take another goodwill writedown, after it took a $54 billion charge in April.

No comment.

Arthur Andersen

November 2001

Shredding documents related to audit client Enron after the SEC launched an inquiry into Enron

SEC; DOJ

Andersen was convicted of obstruction of justice in June and will cease auditing public firms by Aug. 31. Andersen lost hundreds of clients and has seen massive employee defections.

Did not return repeated calls for comment.

Bristol-Myers Squibb

July 2002

Inflated its 2001 revenue by $1.5 billion by "channel stuffing," or forcing wholesalers to accept more inventory than they can sell to get it off the manufacturer's books

SEC

Efforts to get inventory back to acceptable size will reduce earnings by 61 cents per share through 2003.

Bristol will continue to cooperate fully with the SEC. We believe that the accounting treatment of the domestic wholesaler inventory buildup has been completely appropriate.

The company says an internal investigation concluded that its round-trip trades had "no material impact on current or prior" financial periods.

Although the effect [of these trades] on the company's financial statements was immaterial, we consider improper trades in conflict with the company's policies. To address this we have made changes to our organization, personnel and procedures.

Currently conducting a re-audit. Standard & Poor's cut its credit rating to "junk," and the company said it expects to fall as much as $400 million short of the $1 billion in cash flow it originally projected for 2002.

Dynegy believes that it has not executed any simultaneous buy-and-sell trades for the purpose of artificially increasing its trading volume or revenue.

Oscar Wyatt, a major shareholder and renowned wildcatter, may be engineering a management shakeup.

There have been no allegations or accusations, only requests for information. The company has confirmed in multiple affidavits that it did not engage in "round-trip" trades to artificially inflate volume or revenue.

Company filed Chapter 11; Hutchison Telecommunications Limited and Singapore Technologies Telemedia will pay $250 million for a 61.5% majority interest in the firm when it emerges from bankruptcy; Congress is examining the role that company's accounting firms played in its bankruptcy.

No comment.

Halliburton

May 2002

Improperly booked $100 million in annual construction cost overruns before customers agreed to pay for them.

SEC

Legal watchdog group Judicial Watch filed an accounting fraud lawsuit against Halliburton and its former CEO, Vice President Dick Cheney, among others.

Halliburton follows the guidelines set by experts, including GAAP (generally accepted accounting principles).

Homestore.com

January 2002

Inflating sales by booking barter transactions as revenue.

SEC

The California State Teachers' Retirement pension fund, which lost $9 million on a Homestore investment, has filed suit against the company.

No comment.

Kmart

January 2002

Anonymous letters from people claiming to be Kmart employees allege that the company's accounting practices intended to mislead investors about its financial health.

SEC; House Energy and Commerce Committee; U.S. Attorney for the Eastern District of Michigan

The company, which is in bankruptcy, said the "stewardship review" it promised to complete by Labor Day won't be done until the end of the year.

Did not return repeated calls for comment.

Merck

July 2002

Recorded $12.4 billion in consumer-to-pharmacy co-payments that Merck never collected.

None

The SEC approved Medco's IPO registration, including its sales accounting. The company has since withdrawn the registration for the IPO, which was expected to raise $1 billion.

Our accounting practices accurately reflect the results of Medco's business and are in accordance with GAAP. Recognizing retail co-payments has no impact on Merck's net income or earnings per share.

Mirant

July 2002

The company said it may have overstated various assets and liabilities.

SEC

An internal review revealed errors that may have inflated revenue by $1.1 billion.

This is an informal inquiry, and we will cooperate fully with this request for information.

Nicor restated results to reflect proper accounting in the first half of this year.

Our focus now is to stabilize this venture and put some certainty to its financial results. The company is evaluating its continued involvement in this venture.

Peregrine Systems

May 2002

Overstated $100 million in sales by improperly recognizing revenue from third-party resellers

SEC; various congressional committees

Said it will restate results dating back to 2000; slashed nearly 50% of its workforce to cut costs; is on its third auditor in three months and has yet to file its 2001 10-K and so, consequently, is in danger of being delisted from the Nasdaq.

We have been and will continue to cooperate with the SEC and the Congressional committee.

Qwest admitted that an internal review found that it incorrectly accounted for $1.16 billion in sales. It will restate results for 2000, 2001 and 2002. To raise funds, Qwest says it is selling its phone-directory unit for $7.05 billion.

Ex-CEO L. Dennis Kozlowski indicted for tax evasion. SEC investigating whether the company was aware of his actions, possible improper use of company funds and related-party transactions, as well as improper merger accounting practices.

Manhattan district attorney; SEC

Said it will not certify its financial results until after an internal investigation is completed. The Bermuda-based company is not required to meet the SEC's Aug. 14 deadline. Investors looking to unseat all board members who served under Kozlowski may launch a proxy fight to do so.

The company is conducting an internal investigation and we cannot comment on its specifics, but we will file an 8-K on the initial results around Sept. 15.

DOJ; SEC; U.S. Attorney's Office for the Southern District of New York; various congressional committees

The company stunned the Street when it found another $3.3 billion in improperly booked funds, which will bring its total restatement up to $7.2 billion, and that it may have to take a goodwill charge of $50 billion. Former CFO Scott Sullivan and ex-controller David Myers have been arrested and criminally charged, while rumors of Bernie Ebbers' impending indictment persist.

WorldCom is continuing to cooperate with all ongoing investigations.

Xerox

June 2000

Falsifying financial results for five years, boosting income by $1.5 billion

SEC

Xerox agreed to pay a $10 million and to restate its financials dating back to 1997.

We chose to settle with the SEC in April so we can put the matter behind us. We have restated our financials and certified our financials for the new SEC requirements.

Editor's Note: The Corporate Scandal Sheet ceased being updated as of September 2002.